According to Bhimani (2012), activity analysis is the process of comprehensively identifying and describing the activities being carried out in a business. During the process, it is not merely the activities that become identified, but also the goings-on that cause them to happen, and the interrelationships among these happenings. The criteria for establishing whether or not an activity adds value to a business are discussed below:Criteria #1: Necessity
Does the business require that the activity should be performed? How critical is the activity to the continuance of business operations and the growth of the business. A critical piece of machinery used in the course of the daily production operations may break down resulting in disruption of business, for example. If such a disruption will result in costly loss of machine hours and increase employee idle time, it would be necessary to have the machinery repaired within the shortest time possible.
Criteria #2: Efficiency
Has the activity been carried out in an efficient manner? It is one thing for an activity to be performed as a matter of necessity but a totally different thing to have it done efficiently. If the machinery is not fixed cost-effectively, for example, then the activity (repair work) may unnecessarily increase the operation costs of the business, and thus fail to be of value to the business. Likewise, if the problem is not solved quickly, the business may experience delays in its production schedule.
Criteria #3: Value addition
Does the activity add value to the business? While an activity may be necessary and it may have been executed efficiently, it might not increase the value of a business. A decision to quickly have the damaged machinery repaired can minimize loss of machine hours and significantly reduce the extent of production losses that could have been suffered. In this case, the “activity” of fixing the equipment is not only necessary but “value-added” as well.